Monthly Letter December 2014

We round o a very disappoin ng year with a poor December performance. The year was plagued by serious geopoli cal events that a ected world markets (nothing unusual about that), high pro- le frauds (BES in Portugal as an example, again, unfortunately nothing unusual about that), mas- sive monetary s mulus (we are ge ng used to them by now and the markets nd it very di cult to cope without them) and declining earnings es mates (the Black Swan event will be when they have to be revised upwards), to name a few things. This backdrop has led to a search for yield and safety in the investment community. Manifes ng itself in an outperformance of stocks and sectors with somewhat defensive characteris cs. The overall valua on of the European equity market stands pre y close to where it started in 2014. Earnings have barely budged in 2014, which means that the market has kept valua on on the same level as in 2013. But the rela ve valua on between sectors have changed rather drama cally. More about this in addi on to more details about our outlook for 2015 and what we think will characterize the coming year in the annual le er, which is being distributed in a separate send out.

Madrague had a tough month in December, -2.29%. This brings the 2014 performance to -5.7%. This is more than 2% worse than our 2008 performance. That was in a year when the EuroSTOXX50 fell 44% and the equity long/short community was down more than 20%. Since incep on the Fund’s percentage of posi ve months is 60% (21 out of 35), which is just shy of our historical aver- age. The higher number of nega ve months in addi on to the higher downside devia on in the past 12 months have been a contribu ng factor to the nega ve performance in 2014.

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